What Are The Possibilities?

There are two possible ways to buy a property that has a loan outstanding attached to it:

Eliminating The Loan

When signing to complete the purchase at the notary, your lawyer will have two cheques totalling the amount you still owe to the vendor which is typically 90% of the price as you will have paid 10% on signing the private contract. Prior to the signing he or she will have spoken to the lending institution to learn the exact figure outstanding on the day of signing. He will produce one cheque in this amount and another for the balance of the money you are paying.

A representative of the bank attends at the signing and signs the escritura confirming that the debt has been satisfied.

The second cheque is handed to the vendor when all parties have signed the escritura confirming transfer of title to the buyer.

Taking Over The Loan

The second possibility is for the buyer to assume the outstanding debt and pay the vendor the difference between the agreed price and the amount outstanding. This is known as subrogating the existing mortgage loan.

If the buyer needs to finance part of the purchase price, there may be advantages to surrogating an existing loan over applying for a new loan:

One advantage can be lower tax and deed costs. Since 2018, IAJD (impuesto sobre actos jurídicos documentados) on the creation of a new mortgage is generally payable by the lender, not the borrower. And assuming an existing mortgage as part of a purchase normally does not trigger the IAJD gradual quota. The real-world saving is usually in fewer bank set-up costs and fewer formalities, rather than a buyer-paid IAJD bill.

The lending institution may not require a valuation of the property as this was done when the original loan was taken out. The savings will depend on the size and value of the property but typically this could be €500 - €1.000.

There will be no opening commission on taking over an existing loan. Banks in Spain charge anywhere from 0% to 1.5% of the loan value as opening commission. However, there may be a subrogation or novation fee, depending on legal constraints and negotiation.

Is The Process Automatic?

No. Before a loan can be surrogated the bank will need to be assured that the buyer is credit worthy and will require documentation to prove this.

Once the bank is satisfied, an offer of subrogation will be made to the buyer setting out the terms of the loan and any associated commissions.

Are There Disadvantages?

The one disadvantage is that the loan continues under the same conditions as previously agreed. If interest rates have gone down since the loan was originally agreed, it may not be advantageous to take it over. There may also be abusive clauses in the loan agreement. Your lawyer will need to study the conditions to inform you whether it would be favourable to assume the outstanding liability on the existing terms.

Must Banks Agree To Subrogate?

Provided the new client can demonstrate sufficient resources, the bank will almost certainly agree to subrogate, but there is no obligation for them to do so.